In a Thursday webinar, CUNA Chief Operating Officer/Chief of Staff Rich Meade invited credit unions to participate in the CULedger Open Source Project, a system-wide initiative exploring the potential of blockchain technology.
CUNA, the Mountain West Credit Union Association (MWCUA) and their system partners seek to enlist participants while developing a prototype platform before launching, Meade said during a webinar that attracted 350 callers, and likely hundreds more listeners joining them. Meade said the idea is to create interoperability among credit unions regardless of their core systems, third-party products or platforms for quick adoption to the blockchain.
“We want as many credit unions to participate in this proof of concept as possible,” Meade said. “The more participants we have, the more nodes we have, the better we will be able to validate the data and the more reliable that platform will be.”
CULedger Open Source Project organizers are asking for suggested financial contributions from credit unions that want to get involved in the project: $1,000 for credit unions with assets of under $500 million; $5,000 for credit unions with assets of $500 million to $1 billion; and $10,000 for credit unions with assets of more than $1 billion.
“CUNA President/CEO Jim Nussle has challenged the credit union system to be disrupters and not be disrupted,” Meade told the participants. “This is the perfect opportunity for credit unions to come together and form our own network and be the disrupters. This technology, in my opinion, is coming. That’s all the more reason for us as credit unions to build our own platform, then have someone dictate the terms to us.”
Participants will serve as a node on a permissioned shared ledger network. The proof of concept will not be integrated with any core system or other sensitive data, said John Best, president/CEO of Best Innovation Group, a CUNA consulting partner who is assisting with the project implementation. “It will not be connected to anything at the credit union,” Best said. “We will be using false data. Credit unions can wall it off in the cloud if they wish.”
At its most basic level, blockchain technology is a private transaction database. However, in contrast to a traditional database, information on a blockchain can be accessed by participants without the permission of a central administrator. Rather, the blockchain is managed as a network of computers, much like the internet, with each connected participant’s computer defined as a “node.” Each node has a record of the entire blockchain, ensuring the integrity of transactions.
Because each node has a record of every transaction, the blockchain is also called a shared ledger. Think of “ledger” as an accounting ledger, or list of transactions, that can be viewed by all parties. In a traditional ledger, transactions are registered with trusted third parties. If you want to share information or change ownership of an assets, you need to contact the trusted third party, follow the correct procedures and the trusted third party will transfer ownership.
On the permission shared ledger, knowledge of ownership is shared with all registered users. Each member of the permission shared ledger has their own register of every transaction. All individual registers are regularly compared to correct errors and ensure agreement about the accuracy of records.
Originally the formal name of the tracking database underlying the digital currency Bitcoin, “blockchain” is now used broadly to refer to any distributed electronic ledger that uses software algorithms to record transactions reliably and anonymously.
Credit unions could potentially use a permissioned shared ledger not for moving money but for moving data such as “smart” contracts, assets, settlement documents, and identification information that can be tracked and verified in minutes rather than hours and days.
Blockchains often are broken down into two groups:
The proof of concept under exploration by CUNA and MWCUA would be a permissioned credit union distributed shared ledger.